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uiNlTED STATES DEPARTMENT OF AGRICULTURE 

BULLETIN No. 690 |f 

Contribution from the Bureau of Markets, 
CHARLES J. BRAND, Chief. 




S\J^ '^'^U 







Washington, D, C. 



July 23, 1918 



MARKETING PRACTICES OF WISCONSIN AND 
MINNESOTA CREAMERIES. 

By Roy C. Potts, specialists in Markctiin/ Dairy J'roilucts. 



CONTENTS. 



Page. 

Introduction 1 

Factors which influence the marketing prac- 
tices of creameries 1 

Buying policies and methods of creameries. . 3 

Marlceting of creamery by-products. 5 

Transportation of creamery butter to market 6 



Slirinkage of butter from creamery to market 7 

Market methods of weigiiing S 

Marketing of butter by creameries 10 

Market distribution of creamery butter 11 

Conclusion 15 



INTRODUCTION. 

As information regarding the methods of marketing employed by 
the creameries in the two largest butter-producing States, Wisconsin 
and Minnesota, might be of interest to dairy farmers and of value 
to creamerymen, the marketing practices of these creameries were 
studied by the United States Department of Agriculture in coopera- 
tion with the LTniversity of Wisconsin, the University of Minnesota, 
and the Dairy and Food Department of the latter State.^ In this 
bulletin the more important business phases of the marketing prac- 
tices of these creameries and the market distribution of creamery 
butter are presented. 

FACTORS WHICH INFLUENCE THE MARKETING PRACTICES OF 

CREAMERIES. 

The business operations of a creamery may be classified as those 
Avhich are primarily (1) manufacturing practices, (2) business prac- 
tices, and (3) marketing practices. The manufacturing practices 

1 Those participating directly in the investigation were Prof. B. H. Hibbard, Asher 
Ilobson, and Paul Gillen, of the University of Wisconsin, Dr. L. D. H. Weld and O. B. 
Jesness, of the University of Minnesota, and Chris Johnsen of the Minnesota Dairy and 
Food Department. 

Note. — This bulletin should be of interest to creamery men and dairy farmers in tlie 
United States. 

.57209°— Bull, (ino— IS 1 

Wonograph 



I 



2 BULLETIN 690, U. S. DEPARTMEXT OF AGRICULTURE. 

include primarily the technical and scientific methods of converting 
the raw material purchased into various manufactured products. 
The business practices relate particularly to the administrative or- 
ganization, including the accounting methods for keeping records 
of the finances, the products handled, supplies purchased and used, 
and the investments in the business. The marketing practices are 
concerned chiefly with the buying of the raw material from producers 
and the marketing of the products produced. In a general way the 
buying and selling policies or practices are usually closely related to 
the business organization and management. 

For purposes of comparison from the standpoint of Inisiness organ- 
ization in its relation to the marketing practices, creameries may be 
divided into two classes; (1) cooperative; and (2) proprietary and 
noncooperative stock company corporations. As a rule, cooperative 
creameries, except when a form of patronage dividend is employed, 
do not buy the milk or cream from the farmer. At most of the 
cooperative creameries of Minnesota, and at many in Wisconsin, the 
raw material is received and churned into butter and after the butter 
is marketed, the cost of manufacturing, plus a small amount for a 
sinking fund, is deducted from the net return from the sale of the 
butter and the balance is prorated among the patrons in accordance 
wdth the amount of butter fat each has delivered. The stock divi- 
dends are usually limited to 6 per cent, and under the cooperative 
law of Wisconsin enacted in 1911 the nonstockholder is allowed one- 
half of the trade dividend paid to the stockholder. 

Proprietary and stock company creameries usually purchase the 
butter fat from the farmers at a price based upon the quotations of 
a recognized wholesale butter market. Some operate on a basis 
which is practically cooperative by returning to the farmer the aver- 
age price received for the butter, less a fixed charge for manufac- 
turing, which varies from 2 to 4 cents per pound. Another basis 
which is used to some extent is that of allowing the creamery the 
" overrun " ^ as compensation for the cost of manufacturing. 

In creameries owned by an individual the marketing policies and 
practices are determined by the proprietor, while in cooperative and 
stock company creameries the board of directors usually selects a 
business manager or delegates the duties of business manager to 
one of the officers, or to the butter maker. 'In order to maintain the 
operating expenses at as low a figure as possible, most cooperative 
cerameries have generally limited the duties of the business manager 
of the creamery to a minimum and, therefore, those practices have 
been employed which require the least expenditure of time and ex- 
pense. After the butter maker has been employed for the year and 

1 The " overrun " is the difference between the amount of butter fat paid for and butter 
produced. * . . 

D.'* Of D. 
JUL 31 1918 



-<9»t: MARKETING PRACTICES OF CREAMERIES. 3 

the time and method of payment to the patrons has been decided, 
the detailed business features have consisted primarily of the keep- 
ing of a record of the amount of cream delivered by each patron, the 
delivery to the transportation agency of the butter produced, and the 
consignment or shipment of it to market. The problem of transpor- 
tation and market distribution for the most part have been taken 
care of by the transportation agencies and wholesale distributors in 
the market. 

BUYING POLICIES AND METHODS OF CREAMERIES. 

The methods employed in marketing milk and cream to creameries 
have undergone marked changes in recent years. Prior to the gen- 
eral use of cream separators on farms, the local creamery prevailed, 
and practically every creamery obtained its supply of raw material 
from farms in the vicinity of the creamery or skimming stations 
which were reached by wagon routes. Reports obtained in 1915 from 
900 creameries in Wisconsin and Minnesota showed that only 27 
received whole milk exclusively, 243 received both milk and cream, 
and 630 received separated cream only. 

Usually local cooperative creameries required the farmer either to 
pay the costs of country collecting or to deliver the milk or cream to 
the creamery in person or as might be arranged. Reports from 127 
creameries in Wisconsin showed that 71 creameries included the cost 
of collecting in the operating expenses while 54 charged the cost 
of collecting to the patron and 2 employed a combination of these 
two methods. The cost of collecting varied from 0.5 to 4.6 cents per 
pound butter fat, with an average cost of approximately 1.7 cents. 
The patrons of many local creameries in Minnesota organized 
" rings "' of two or more farmers, in which each took his turn in 
hauling his own and the cream of the others. This method of haul- 
ing gave each member the full benefit of a delivered price. At 
about 20 per cent of the creameries, all or a part of the cream was 
gathered by routes, the average length of which was about 23 miles. 
At eight creameries which gathered their cream mostly by routes the 
average cost of collecting 952,449 pounds of butter fat by routes was 
2.7 cents per pound. 

At some creameries it was a common practice for the patrons to 
deliver their cream every two or three days, although some delivered 
onl}^ once a week. Those creameries which required daily deliv- 
eries in summer, often permitted delivery every other day in winter, 
and when three deliveries a week in summer were required, two were 
permitted in winter. Many creameries required the cream to be de- 
livered in the morning, while others accepted it at any time during 
the day. 



BULLETIN 690, U. S. DEPARTMENT OF AGRICULTURE. 



In the transportation of cream by railroad to 40 centralizing 
creameries, the average cost was reported to be 1.63 cents per pound 
of butter fat. This, however, did not include the countr}^ collecting 
or delivery cost incurred by the farmer in the delivery of his cream 
to the receiving or shipping station. 

BUYING OF CREAM BY GRADE. 

The infrequency of delivery of cream to creameries and other 
factors have resulted in the marketing of considerable cream of in- 
ferior quality. A number of cream- 
eries, recognizing the relation of poor 
cream to poor butter, which on the 
market sells at lower price (see fig. 1), 
have sought to encourage more fre- 
quent deliveries by establishing 
grades for cream and by paying dif- 
ferent prices for the various grades. 
About 15 per cent of the creameries 
in Minnesota from which information 
regarding cream grading was ob- 
tained had employed a grading sys- 
tem. Usually tw^o grades were em- 
ployed and a premium of 2 or 3 
cents per pound of butter fat was 
paid for the better grades of cream. 
Many cream.eries reported that they 
Avere in favor of grading and in- 
tended to adopt such a system. 

The general opinion of those cream- 
eries which had graded their cream 
was that the quality of the cream 
received had been greatly improved. 
Those which had noted the effect of 
cream grading on the price received 
for their butter stated that an in- 
crease had been obtained. Eight 
creameries which churned the first 
and second grade cream separately 
showed an average increase in price 
of 3.6 cents per pound for the butter churned from the first grade 
cream. At some creameries, the patrons who supplied second-grade 
ci-eaiM objected to the grading system and in some cases a few patrons 
had been lost. 





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Fu;. 1. — .Average monthly quotations 
on the New York market for va- 
rious classes and grades of butter 
for the year 1914. 



MARKETING PRACTICES OF CREAMERIES. 5 

BASIS OF PRICE PAID FOR CREAM. 

The usual practice of the cooperative creameries of Wisconsin and 
Minnesota was to prorate the net receipts among; the patrons accord- 
ing to the amount of butter fat each had furnished. Those cream- 
eries in Minnesota which did not operate on the cooperative basis, 
usually based their buying price of butter fat on the New York butter 
quotation for " extras." Creameries in Wisconsin used either the 
Elgin or Chicago quotation, and frequently paid premiums above 
the quotations when the Elgin quotation was used. 

The centralizing creameries in these States gave consideration to 
the price paid by local creameries, also the market quotations at 
New York, Chicago, Elgin, and Boston. When country cream receiv- 
ing stations were operated by centralizing creameries, the price paid 
to the patrons for butter fat was sometimes as much as 4 cents beloAv 
New York " extras." Direct cream shippers received approximately 
tlie market quotation for " extras." 

FREQUENCY OF PAYMENT TO PATRONS. 

About 80 per cent of the cooperative creameries of Minnesota paid 
their patrons once a month and 15 per cent paid twice a month. The 
frequency of payment varied with the others. The system of paying 
the patrons monthly may be accounted for by the usual method of 
prorating the monthly net receipts according to the amount of butter 
fat each patron had delivered. The noncooperative creameries in 
jNImnesota were about equally divided on the methods of paying 
once a month, twice a month, and at time of delivery. Of 250 cream- 
eries in Wisconsin, 48 per cent paid monthly, 39 per cent semi- 
monthly, and the rest either daily, semiweekly, or weekly. Nearly 
all centralizing creameries paid for each shipment of cream as it 
was received. 

MARKETING OF CREAMERY BY-PRODUCTS. 

Skim milk and buttermilk are natural by-products of creameries. 
It was found that usually the skim milk was returned to those patrons 
who delivered whole milk, at the rate of 80 per cent of the amount 
of whole milk delivered. 

Frequently the buttermilk at country creameries was contracted 
to a reg^dar buyer or to patrons at 10 cents per can, or at 1 to 1^ 
cents per gallon. Creameries located in large cities often sold but- 
termilk to hotel and other city trade at 2 to 10 cents per gallon. 

Ice cream, while not ordinarily considered as a creamery by- 
product, was manu|actured as a creamery " side line " in about 20 
per cent of the creameries in Wisconsin, and 2.1 per cent of those 
in Minnesota, by the converting of a part of the milk and cieam sup- 



6 BULLETIN 690, U, S. DEPARTMENT OF AGRICULTURE. 

ply into this product. Some creameries made only a few gallons 
per da3% while others engaged in ice-cream production more exten- 
sively. In most instances it was sold to local trade in the city in 
which the creameiy was located. The annual receipts from the sale 
of ice cream at the creameries varied from less than $1,000 to over 
$35,000. 

TRANSPORTATION OF CREAMERY BUTTER TO MARKET. 

The shipment of butter to market was usually made by refrigera- 
tor freight. The schedules in most instances provided for weekly 
or semiweekly shipments. The butter produced after the shipping 
day, was usually held in storage at the creamery. The facilities for 
storage at most creameries consisted of insulated storage rooms which 
were kept cold either by the use of ice or mechanical refrigeration. 
About 92 per cent of the creameries used ice, as it was considered 
cheaper. 

In furnishing refrigerator service to local creameries, the railroad 
company either set out an iced refrigerator car on the sidetrack at 
the creamery's shipping station or carried a refrigerator car in a local 
way freight, which made it necessary for the creamery to deliver its 
butter to the depot where it was ready when the refrigerator car ar- 
rived. The consolidation of less-than-carload shipments into full 
carloads was effected at division points, where a number of cars were 
assembled on parallel tracks or along a platform, and the butter des- 
tined to different markets was transferred into separate cars. (See 
fig. 2.) The butter which had arrived over the different divisions was 
thus loaded so that each shipment could be forwarded by through fast 
freight to its final destination. 

The transportation charges and routing of shipments varied some- 
what in different sections. Northern Minnesota butter in less-than- 
carload lots, routed rail-lake-and-rail via Duluth to Buffalo and 
points beyond, took a combination of rates on Duluth and Buffalo. 
The tariffs of the lake carriers required a minimum of 15,000 pounds 
of " dairy products," i. e., butter, eggs, and dressed poultry, in 
straight or mixed lots from one shipper for one destination and de- 
livery. For the purpose of economizing in freight charges the ISIinne- 
sota shippers emplo^^ed an agent at Duluth who effected consolidation 
of the shipments at that point. 

The all-rail shipments moved through Chicago, while many from 
Minnesota moved through St. Paul. The less-than-carload ship- 
ments took the second-class rate to Chicago, while the carload ship- 
ments took the third-class rate, with a minimum weight of 20.000 
pounds. Usually the less-than-carload shipments were consolidated 
by the railroads at St. Paul, Chicago, and other points in order to 



MAEKETING PKACTICES OF CKEAMEKIES. 



make full cars for separate destination, which resulted in quicker 
time in transit to the final destination. The through rate to eastern 
points was a combination rate on St. Paul or Chicago. The second- 
class rate applied to that jDortion of the routing east of St. Paul or 
Chicago, and was the same for carload and less-than-carload ship- 
ments, so that the through carload rate was very little lower than the 
through less-than-carload rate. 




Fig. 2. — Consolidating less-than-carload shipments destined to the same market into 

one car. 

SHRINKAGE OF BUTTER FROM CREAMERY TO MARKET. 

Shrinkage is usually considered as the difference between the weight 
of butter at the creamery and at the market. Since only tub butter 
is sold on the weight-at-market basis, the investigations were confined 
to this style of package. Prior to the date on which the net weight 
amendment to the Federal food and drug act became effective many 
creameries did not weigh their butter carefully before shipping. This 
amendment requires that the net weight of each package be marked 
upon it. If the weight is overmarked the creamery becomes liable 



8 BULLETIN 690, U. S. DEPARTMENT OF AGRICULTLTRE. 

to prosecution, unci if undermarked the creamer}- may be paid for 
less than the actual net weight of the butter if the receiver or buyer 
accepts the weights marked on the packages by the creamery. In the 
investigation, comparisons of creameries' weights and receivers' 
weights were made of 1,044 tubs, consisting of 55 shipments of Minne- 
sota butter, forwarded to 32 firms on seven different markets. The 
net weight at the market was 605.5 pounds less than the weight at 
the creamery, or an average of 0.58 pounds less per tub than the 
creameries' weights. 

Considerable variation in shrinkage w^as obsem-ed in the various 
shipments. One shipment showed an average loss of 2.3 pounds per 
tub, while another apparently gained 1.37 pounds per tub. These 
wide variations may have been due to errors in weighing at the cream- 
ery and the methods of weighing employed by the receivers of butter 
in the market. In some markets fractional pounds were not consid- 
ered by the receivers and only a portion of the tubs were stripped to 
get the average tare which was used in estimating the net weights for 
the entire lot. 

In a more detailed investigation, including both Wisconsin and 
Minnesota butter, where weighings were made to one-fourth pounds 
by representatives of the department, both at the creamery and in the 
market, the following results were obtained : 





stale. 


CHiicago shipments. 


New York shipments. 




Number of 
tubs. 


Average 
shrinkage. 


Number of 
tubs. 


Average 
shrinkage. 




160 
149 


0.399 
.210 


46 
345 


0.418 




.217 







The actual average net shrinkage on the Wisconsin butter was 
approximately four-tenths of a pound per tub, and on the Minnesota 
butter only two-tenths of a pound. The difference in the shrinkage 
of the butter per tub when the w^eighings were made in the market 
by the receivers, and when made by representatives of the depart- 
ment, may be explained by the differences in the methods of weighing. 

The representatives of the department, both at the creamery and 
in the market, obtained the gross weight of the tub when filled and 
when empty (not including the tub cover) to the nearest quarter 
pound. The difference between these weights was taken as the net 
weight of butter. 

MARKET METHODS OF WEIGHING. 

The receivers on the market usually w^eigh each tub in the ship- 
ment separately to obtain its gross weight. In obtaining the gross 
weight, fractions of pounds usually were disregarded; in fact, most 



MARKETING PRACTICES OF CREAMERIES. 



receivers require that the beam of the scale touch the upper rest. 
If it merely plays lightly on or above the center, practically a whole 
pound is lost to the creamery, as the next lower pound is taken as 
the weight. After each tub has been weighed (gross), a few are 
stripped — that is, the butter is removed and weighed. (See fig. 3.) 
In this Aveighing all fractions are again disregarded and up-weights 
usually are required. By this practice it is possible for a creamery 
to lose practically a pound on certain tubs, and occasionally it may 

lose even 2 p o u n d s 
through a slight error 
in both the gross und 
net weights. This, 
however, is not fre- 
quent, for the results 
obtained showed that 
ordinarily the differ- 
ence between the 
weights made at the 
creamery and the 
Aveights obtained at 
the market under the 
prevailing market 
practice of approxi- 
mating the net weights 
Avas from one-half to 
three-fourths of a 
pound per tub. A 
portion of this differ- 
ence is shown by the 
w^eighings made by 
the department's rep- 
resentatives to be due 
to an actual shrinkage 
or loss in the net 
Aveight of the butter 
Avhile in transit to 
market. With the increase in the market value of butter during 
recent years, the financial loss to the creamery caused by the 
present method of approximating the net weight is much larger 
than it was formerly when the present market method of weighing 
was established. 

Occasionally a weigher Avill " give and take " ; that is, recognize a 
full pound even if the beam of the scales balances merely on the 
center. In other words, " snug up-weights " are not required when 




Fig. 3. — In making " test-weights " to determine the tare 
weight of the tub, strong up-weights are usually required. 



10 BULLETIN 690^ U. S. DEPARTMENT OF AGRICULTUEE. 

the stripped tub of butter is Aveiglied. By recognizing lialf pounds 
the -weights obtained would approximate closely the actual net 
weight and eliminate a large part of the difference between the 
weights at the creamery and the market. 

MARKETING OF BUTTER BY CREAMERIES. 

The various buyers of creamery butter may be classified as con- 
sumers, retailers, jobbers, and wholesalers. The patrons comprise 
the principal outlet for the sale of butter direct from creameries 
to consumers. Approximately 4 per cent of the butter produced by 
Wisconsin creameries, and 6 per cent of that produced in Minnesota 
was sold to the creamerj^ patrons. At some creameries nearl}^ all the 
patrons obtained their butter fiom the creamery while at others the 
sales to patrons were limited. 

Creameries located in large cities sold a large part of their butter 
at some seasons to retailers, while some of the country creameries 
sold practically none to this class of tarde. Of the total amount of 
creamery butter produced in Minnesota, less than 7 per cent was sold 
to retailers, while in Wisconsin aj)proximately 15 per cent was mar- 
keted in that W"a3^ 

Many jobbers who function as wholesale distributors in suppljdng 
retail trade bought a large portion of their supply in print packages 
from creameries. Centralizing creameries located in large cities sold 
local grocers large quantities of butter in prints. That which was 
not sold locally was usually marketed through their own sales or- 
ganization or distributed in prints or tubs through jobbing agents. 
The principal cities to which butter was shipped to wholesale butter 
distributors were Chicago, New York, Boston, and Philadelphia. 
These four markets received about two-thirds of the butter produced 
in these two States. Chicago received approximately one-half of 
Wisconsin's butter and less than 15 per cent of Minnesota's, while 
over one-half of Minnesota's was marketed in New York Cit}'', and 
less than 10 per cent of Wisconsin's. 

CREAMERY METHODS OF MARKETING. 

The general practice of Wisconsin and Minnesota creameries in 
marketing tub butter was to ship it to wholesale receivers upon an 
informal agreement between the creamery and the receiver under 
Avhich the price to be received usually was based upon a designated 
market quotation for "extras." About 80 per cent of the Wisconsin 
creameries based their agreements on the Elgin quotation; 16 per 
cent on Chicago ; and 4 per cent on the New York quotation. Min- 
nesota creameries which shipped to New York generally used the 
New York quotation as the basis of their price agreement. The 
agreements frequently varied, including market quotation net f . o. b. 
shipping station; market quotation net f. o. b. receiver's station; 



MARKETING PRACTICES OF CREAMERIES. 11 

market quotation plus a premium less freight ; market quotation plus 
a premium less freight and cartage; or market cjuotation plus a 
premiu.m less freight, cartage, and commission. 

Of those Wisconsin creameries which sold on the basis of the Elgin 
quotation, approximately 70 per cent received the flat Elgin quota- 
tion and the others a premium of from 1 to 4 cents above. When 
the Chicago quotation was used, the flat quotation generally pre- 
vailed although the net price received varied from | cent below to 
1| cents above. It is estimated that approximately 15 per cent of 
the creameries of Minnesota sold their butter f. o. b. the shipping 
station; 85 per cent had freight charges deducted, and 37 per cent 
were charged a commission. The chief reason for deducting a com- 
mission was that many of the creameries were accustomed to it and 
by allowing a commission to be deducted the gross price obtained 
could be expressed in the form of a premium above the quotation. 
By allowing a commission of | cent and a freight charge of approxi- 
mately 1^ cents to be deducted, a creamery would receive a gross 
price of 2 cents above market quotation, which actually was equal to 
the quotation net at the shipping station. 

A common custom of the creameries was to forward their ship- 
ments on order bills of lading and to draw a draft against the con- 
signee which was passed to their local bank for collection or credit. 
When a sight or demand draft is used it is attached to the original 
copy of the " order " bill of lading. The draft usually is drawn to 
cover from 60 to 75 per cent of the value of the shipment. One ad- 
vantage of the order bill of lading is that the consignor has con- 
trol of the shipment until the draft is paid, and the creamery's risk 
of collection for the goods is reduced by that amount. The use of 
this form of a bill of lading is desirable when demand or sight drafts 
are used and shipments are made to firms whose financial standing 
has not been ascertained. 

MARKET DISTRIBUTION OF CREAMERY BUTTER. 

The following method of wholesale market distribution of cream- 
ery butter was found to be prevalent : 

Upon the arrival of a freight shipment of butter at a terminal 
market, a notice was sent by the railroad to the consignee. The but- 
ter was trucked to the receiver's salesroom, where it was weighed, 
inspected, and held for sale or disposal. 

As a means of identifying the shipments from each consignor, the 
receiver usually furnished the creamery with a rubber stamp or 
stencil which was used on the top of each tub. This stamp gave the 
name and address of the consignee, and the serial number of the 
creamery. These sten'cil numbers were frequently removed by the 
receiver before the butter was sold. 



12 BULLETIN 690, U. S. DEPARTMENT OP AGEICULTURE. 

During- the season of surplus production, beginning about April 1 
and ending September 1, that portion of the market receipts ^Yhich 
did not pass into immediate consumption was usually put into public 
cold storage either by the receiver or by other buyers of butter for stor- 
age purposes. The rates for storage varied according to the length of 
time that the butter was held. Ordinarily, storage rates were figured 
at three-fourths of a cent per pound for a storage period of six 
months. As a temperature of zero degrees F. or below was main- 
tained in the storage rooms, the butter usually deteriorated but little 
in quality. Butter stored in warehouses was usually insured for 
approximately 80 per cent of its value at a charge of from 60 cents 
to $1.50 per $100, depending upon the character of construction of 
the storage. The warehouse receipt and the insurance certificates 
were used as collateral in obtaining loans on butter in storage. The 
usual rate of interest on these loans was 6 per cent. The largest 
quantities were placed in storage during May, June, and July, and 
the withdrawal from storage was heaviest from September 1 to 
April 1. Approximately 70 per cent of all butter stored was re- 
ceiA^ed into storage during the months of May, June, and July. Ap- 
proximately 74 per cent was taken from storage from September 1 
to April 1. 

The business of the w^holesale receiver is, in general, organized 
about as follows : A general manager supervises the entire business 
and gives particular attention to securing the supplies of butter, 
often personally supervising the soliciting of shipments from cream- 
eries. The cashier has general supervision of the clerical force and 
bookkeepers. The " floor man " in the receiving room is an expert 
judge of butter quality and oversees the grading and taking out of 
the orders. The sales force keeps in close touch with the general 
manager, floor man, and the credit department. The credit depart- 
ment usually consists of a credit clerk who is responsible to the 
cashier and the general manager. 

Many wholesale receivers function also as jobbers. Jobbers may 
operate as wholesale receivers or they may obtain their supply of 
butter from wholesalers. The retail stores are supplied by jobbers 
who take orders and deliver the quantity and quality of butter in 
such size and style of packages as the retailers' trade requires. In 
addition, the jobbers also supply such trade as restaurants and ho- 
tels, dining cars and boat service, and out-of-town retailers and 
jobbers. 

The marketing of creamery butter from producer to consumer is 
not dependent upon any one system of wholesale or retail distribu- 
tion. (See fig. 4.) Local creameries, cream stations, and centraliz- 
ing creameries may act as agents of the producer or they may be cash 



MARKETING PRACTICES OF CREAMERIES. 



13 



buyers of his milk and cream. The exclusive distributing agent of a 
centralizing creamery may receive a salary, a salary and commission 
on sales, or a commission alone. Not infrequently the butter is pur- 
chased on a regular contract basis. Thus the ownership of the goods 
passes, while in the former instances it remains with the creamery. 
The cooperative mar- 
keting associations 
may be selling agents 
of local creameries. A 
brokerage agent usu- 
ally represent a jobber 
or wholesaler in buy- 
ing butter from a cen- 
tralizing creamery or 
Av h o 1 e s a 1 e dealer.- 
Cold-storage firms do 
not usually buy or sell 
butter, although they 
frequentlj'' make loans 
on goods put in their 
storages. 

COST OF MARKET DISTRI- 
BUTION OF CREAMERY 
BUTTFR. 



As creamery butter 
in passing from pro- 
ducer to consumer may 
be handled through 
different channels of 
trade, the average 
margin or approxi- 
mate cost in one chan- 
nel may not represent 
the cost in any other. 

The following in 
general was found to 




Fig. 4. — Channels of distribution of creamery butter from 
producer to consumer. The most usual channels are 
Indicated by the heavy lines. The rectangles denote a 
change of ownership of goods and the circles an inter- 
vening agency between seller and buyer — usually a 
cooperative organization representing the seller. 



be approximately the usual margin on tub butter when it passed 
direct from wholesale receiver to jobber, from jobber to retailer, and 
then from retailer to consumer. 

Cents. 

Wholesaler's grcss margin i 

.Jobber's gross margin 1^ 

Retailer's gross margin 4 



Total 6 



14 



BULLETIN 690, U. S. DEPARTMENT OF AGRICULTURE. 



These margins do not always prevail, for a wholesale receiver may 
handle a carload of butter for a quarter of a cent per pound and a 
chain store ^ may retail to consumers on a gross margin of 3 cents 
per pound. 

Butter which has been carried for several months in cold storage 
and has incurred charges such as interest on loans, storage, insurance, 
and drayage and which has risked deterioration, may be sold at a 
net loss or a net profit of several cents, depending upon the quality 




Fig. 5. — Inspecting a shipment of butter by a wholesale receiver. 

of the butter and its market value when taken from storage. The 
margin on butter purchased by a retailer direct from a creamery may 
vary from 2 cents to 10 cents per pound. Some retailers follow closely 
the wholesale market quotations and base both their bujdng and 
selling prices on it. The margins on butter depend to a considerable 
extent upon market conditions, trade requirements, and the service 
given. 



^ Chain stores consist of a number of retail stores operated under a single manage- 
ment. 



MAEKETING PRACTICES OF CREAMERIES. 15 

CONCLUSIONS. 

The great majority of the creameries in Wisconsin and Minnesota 
usually produced a quality of butter for which there was an active 
market demand. The comparative ease with which creameries have 
been able to contract, or to sell their butter to wholesale receivers has 
not necessitated the employment of expert salesmanship. With 
traveling representatives of wholesale receivers willing to contract 
for the yearly output of the creameries and the contracts with re- 
ceivers frequently renewed year after year, individual rather than 
cooperative action among creameries in marketing butter has pre- 
vailed. In most instances the creameries have been well satisfied with 
the returns received and therefore the necessity of cooperation among 
creameries has not been strongly apparent. Thus the efforts toward 
organizing cooperative marketing federations of cr<eameries for 
marketing butter independent of the regular wholesale outlets, have 
never found much favor or been developed to any great extent. 

The need for cooperative action among creameries in marketing 
their butter, and the advantages to be derived therefrom in the 
future, will depend upon the changes which take place in the market 
distribution and the butter marketing conditions in the larger whole- 
sale markets. The present increasing demand for manufacturers' 
brands and for carload shipments of butter of uniform quality, in- 
dicates a growing change in marketing conditions, and suggests the 
need of cooperation among country creameries in standardizing the 
quality of their butter in accordance with such requirements as those 
of " State brands," ^ and of being better informed regarding market 
conditions and outlets for the sale and distribution of their product. 
It is possible that the benefits to be derived by cooperative action and 
through marketing federations of creameries may be more apparent 
in the future than in the past, as improved marketing methods are 
'required to meet the problems which may arise under new marketing 
conditions. 

1 The requirements of State brands in Minnesota, Michigan, and Iowa are given in 
Bulletin No. 456 of the U. S. Department of Agriculture, entitled " Marketing Creamery 
Butter." 



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